Call the President’s Bluff, Part 2

This morning The Hill reported that seven Senate Democrats are opposed to ending the Bush tax policies on anyone, even the wealthy, without a deficit deal along the lines of Simpson-Bowles. This puts the President in quite a tight spot, especially in light of White House Press Secretary Jay Carney’s statement on June 6 that the President would not extend the tax policies for upper-income earners, even temporarily:

Q: : : Jay, is the President’s vow not to ever extend the Bush-era tax cuts on the wealthy again extend to a temporary extension aimed at getting some comprehensive agreement?

MR. CARNEY:: President Obama has been clear about his position and it has not changed:: We should not extend and he will not extend the tax cuts — the Bush-era tax cuts for the wealthiest 2 percent of the American people.: It’s bad policy.: It’s bad for the economy, bad for our —

Q: : : Even temporary?

MR. CARNEY:: I would just point you to what the President has said and his position has not changed.

Q: : : It sounds like you’re leaving room —

MR. CARNEY:: No, I’m not.: I’m citing the President of the United States.

Q: : : I just want to be clear, though — so even temporarily he would not extend the Bush tax cuts?

MR. CARNEY:: The President’s position is that we absolutely should extend the tax cuts for the middle class; we should not extend and he will not extend tax cuts for the highest-income Americans.

The question you should be asking is, will the Republicans force a tax hike on 98 percent of tax-paying Americans because they’re holding them hostage to tax cuts to the wealthiest Americans.: That’s the question.: Because if the Republican —

Q: : : But —

MR. CARNEY:: No, Julie, it’s not on the level — what I’m saying, he will not — could I be more clear?: He will not support an extension of the upper-income Bush tax cuts.: He could not be more clear.

That’s not entirely bad news for Obama, either – assuming he takes advantage of it.: The Taxmageddon effect on the economy has already started, with businesses and investors sheltering capital in anticipation of heavy damage at the beginning of next year.: Resolving that with a temporary one-to-two-year compromise would encourage more risk and investment, although probably not an overwhelming amount of it, given the state of demand at the moment.: That could produce a couple of good months of economic indicators and give Obama some breathing space.

The question will be whether Obama can take a deal.: He has spent nine months demonizing Republicans and blaming the wealthy for using tax rates that have been in place for more than a decade.: A reversal now would undercut his argument against Mitt Romney in the general election, and it’s difficult to gauge which option would do the most damage – pushing Taxmageddon until the election, or disappointing his progressive base one more time on tax rates ahead of it.: Unfortunately, Obama won’t have the option of getting comprehensive reform passed in the next few months in order to avoid having to make this choice, thanks to his abandonment of Simpson-Bowles sixteen months ago – and it’s too late to adopt it now.

But will the President change his position? On the one hand, he’s backed off on a myriad of positions since taking office, from closing Guantanamo to support for a public option in the PPACA to not raising taxes in last year’s Budget Control Act — clearly, holding steady is not his strong point when controversy arises, and backing down on the Bush tax policies could actually do some economic good and help his re-election chances. On the other, can he really back off on this, an issue he already abandoned liberal Democrats on with the temporary extension in 2010? Dispirited conservatives helped cost Senator McCain (R-AZ) the Presidency in 2008, and the same could (probably won’t, but could) happen if Obama reverses position on the tax cuts.

Whether or not the President will abandon his stance from two weeks ago is uncertain at this point. However, Republicans ought to firmly stand with these seven Democrats, and take advantage of the opening they have provided to push other vulnerable Democrats to fight for a grand bargain that does not raise taxes, will cut tax loopholes, cuts significant spending and puts our nation back on a path to fiscal balance.